Federal government on course for austerity in 2013

The federal government is on course for large spending cuts and tax increases starting January of 2013. This comes from a combination of three things: the end of some of the Obama administration stimulus that began in 2009; the end of large tax cuts, especially for the wealthy, done under the Bush administration; and automatic spending cuts designed to reduce the federal budget deficit. While some of the tax increases would not fully take effect until April 2014, and others could be reversed, the right wing is using fears of a ‘fiscal cliff’ to try to extend tax cuts for the rich and block planned cutbacks in military spending.

The largest immediate impact will be felt by jobless workers, as the federal Emergency Unemployment Compensation (EUC) program will close down in January unless Congress extends funding. The EUC provides an additional year of Unemployment Insurance (UI) benefits after the state UI is used up at the end of six months. There are now about 2.5 million unemployed people collecting EUC who will lose their benefits if Congress doesn’t act. The other federal UI program, Extended Benefits (EB), has already been shut down in a compromise with the Republicans, dropping 500,000 jobless workers from Unemployment Insurance.

The other group facing an immediate impact is low and middle-income workers, who will see their Social Security payroll tax rate rise from 4.2% to 6.2% when the 2% tax cut ends in January. This tax cut began with the American Recovery and Reinvestment Act (ARRA) (the Obama administration stimulus program that started in February 2009). There will be an immediate increase in the FICA withholding from workers’ paychecks in January 2013, reducing workers’ take home pay by 2%. FICA is the payroll tax that pays for Social Security and Medicare.

The impact of the end of the Bush-era tax cuts will take a longer period of time. The end of income tax cuts will depend on when the IRS issues new withholding rules. The higher taxes would be refunded in 2013 when people file their income taxes if some or all of the tax cuts are extended. In contrast, there is no mechanism and almost no chance that unemployed workers or low and middle-income workers will see any retroactive benefits or refunded payroll taxes if these programs are extended after the beginning of the year.

The end of other Bush tax cuts for stock dividends and reductions in the estate tax would be felt later since these taxes are not withheld. The Alternative Minimum Tax (AMT) would also cover more high-income (but not rich) households earning $200,000 to $500,000 per year, but this would not kick in until they file their 2013 tax returns in 2014. In fact, the AMT has been regularly cut back mid-year in previous years.

In addition to these planned tax increases, the failure of Congress to come up with spending cuts means that automatic cuts will start in 2013; half coming from the military, and the other half coming from other spending (except for Social Security, Medicare, and Medicaid). Cuts in domestic spending such as education and food stamps will be felt faster, while the military cuts will take longer.

The media and the right-wing have been calling these tax increases and budget cuts a ‘fiscal cliff’ to scare people into supporting extension of tax cuts for the rich and restoring spending on the military. While it is true that if all the spending cuts and tax increases continue for a number of months that the economy will fall back into a recession, there is no ‘cliff’ that the economy will fall off in January.

The only cliff will be for the millions of unemployed collecting federal Extended Unemployment Insurance benefits who will be cut off unless the EUC program is renewed. For working people and their allies, this is the most immediate fight: to renew and expand federal Unemployment Insurance benefits. There are more than 5 million people who have been out of work for more than six months, making up more than 40% of all unemployed workers. Half of these jobless workers are not collecting unemployment insurance benefits already. This group would be the hardest hit but is getting the least attention by the mainstream media.

Another fight for us to wage is to renew the payroll tax cut that mainly goes to low and middle income workers. Even better would be to return to the original Obama stimulus tax cut, which would also benefit the teachers and some other government workers who are not covered by Social Security and the self-employed who also pay Social Security taxes but not FICA.

An additional battle we have is the effort to extend the tax cuts for low and middle-income households, while letting the Bush tax cuts expire for higher incomes, dividends and the estate tax. Over the last 30 years, the rich have gotten richer and the poor poorer and more and more workers are just surviving paycheck to paycheck. The rich can afford to pay and should pay more.

Finally, we have to join the effort to stop spending cuts on domestic programs, such as education and food stamps, but to make even greater cuts in military spending. This effort will face stiff opposition from Republicans and some Democrats, who want the opposite: more military spending while cutting food stamps (which the Republicans in Congress recently voted to do).

While the Obama administration is ‘talking the talk’ on many of these points, we cannot rely on a Democratic victory in November to win these goals. Just look at what Obama promised working people in 2008: expanding voting rights for workers trying to unionize, immigration reform and universal health care. Card Check to unionize? Didn’t even try. Immigration reform? No legislation drafted, and in 2012 Obama gives temporary status to undocumented who came as children. He could have done this in 2009, but instead deported record numbers of immigrants. Universal health care? Obama’s reform will subsidize private insurers and expand Medicaid (which pays so little that many doctors won’t accept it) and still leaves millions without health insurance.

We need to continue to build a grassroots movement to fight against putting the burden of austerity on poor and working people for 2012 and beyond.

9 comments

Ugh, no one gets benefits for 99 weeks anymore, most states are a max of 63 weeks , some at 72 i believe.
Yes the poster above is right, some states are below 7 percent.
But i think all would agree those numbers are bullshit, the economy hasnt generated enough jobs to keep up with new people entering the job market.

Only reason the unemployment rate has gone down from 10 percent to 8 percent, is people not being counted in the work force, basically the government fudging the numbers. If you look at real unemployment which is the U6, unemployment is just below 15 percent.

My final small partial unemployment check will paid out Dec 11th.I had always heard if needed
you got 99 weeks, I got about a third of that then was told bye-bye. I have sent out thousands
of resumes and gone on over 50 interviews.Being in your early to mid 60tys is pretty much the kiss of death in the current job market.

I would venture to say the unemployment rate for people over sixty is well over 50% with the rest
being severely underemployed. There should be some consideration of age in the length of
unemployment compensation. Older people are going to take longer to find a job and I am sure the government knows that fact. I want to find a job any job and I am going to keep trying but I will surly
be on the streets very soon.
Congress get off your ass and do the right thing if only this one time. Then you can go back to doing whatever the riches people tell you to do. Please come to your senses before millions of additional
people join the homeless.

Our congressional members have a job because we hire them. We pay their salary, for their aides and the hundred other perks they enjoy while they sit on their thumbs. Don't kid yourself five years working for a federal contractor and trust me the game is played very well...at our (taxpayer) expense- the waste is sickening. When the company closed, I had to work 60 hours a week (which i did for two years) to make what I did working 38. Because I was exhausted I injured myself and after paying me for two weeks my employer stopped benefits and told me to collect unemployment because they could not meet my restrictions. I need surgery on both hands and while they screw around playing the judicial game, I wait. Who is going to hire me with the restrictions I have and I have no health insurance since I have been laid off. Big bonus, my unemployment is half what I earned and it ends in December, my last WC hearing is in February. So let me see I don't have extra money for food but I should pick up and move to where more jobs are...do you just click your heels three times and say there's no place like home? Wake up. Any member of the Senate or House who does not do their job should be fired. They should also be paid the median wage of the people they represent...period, then you will see elected officials who give a dam. Limit their terms, take away their perks and see how quick they find another job- or offer them Unemployment for 6 months and tell them to live in my shoes.

Please congress pass this bill. I just found out my unemployment will run out in December. It has been a lifesaver for me. I have worked since I was 17 - never a break in employment. Was employed for 9 years in the healthcare profession only to have my job eliminated one Monday afternoon as I clocked out. Was called in by management, given 2 weeks severence pay and my cobra package. Had a good paying job one minute and then it was gone. My bills certainly didn't decrease. In my early 60's and frankly no one wants to hire you. Most employers are looking for younger prospects. I've been to prominent companies as well as convenience stores and small shops. It certainly is very stressfull when you know your rent along with all your other bills will be coming due in January and you have no means to pay. Please Congress.

coakl, you obviously haven't ever needed that unemployment check to meet your bills. I hope you never do. It is constant stress and worry, wondering when you're going to find a job and will your benefits hold out until then.

I would love to be able to go back to school and retrain, but I'm unemployed and I don't have the MONEY. Maybe you'd like to help. I would much rather have a job than depend on unemployment. I have to live at home right now and even while I've been on unemployment, I pay my own bills (barely). Howver, if they don't extend the unemployment, not only won't I be able to make my bills, but my parents won't be able to meet their bills without my regular contribution to the household bills. I don't sit around and "mooch" off my relatives. I hate having to accept help, but right now, that's what I need, until I can find a job.

A welfare check???? Obviously you are not unemployed. I got laid off from my first job when the company closed during the 2008 nightmare. I worked a forty hour week. I had to work 60 hours at my next job to make what I did at my first job. I did that for two years, got hurt and they paid then denied the WC so i had to collect unemployment. To get another job means I give up the hopes they will pay for hand surgery. I also have to put down the prior injury and current restrictions. I can't make it on the unemployment and I can't work 60 hours a week....welfare ????? You have your head in the sand.

Millions of people are still out of work. The EUC program has been a LIFELINE for people who need the funds while they seek work. Sure, some people may take advantage of the program, but I would wager less than 1%. The vast majority need this lifeline income while they seek new jobs to move their family forward. It pays food and rent and gives one a chance to look for a new job without worry there is no income to support them in time of need. THE EUC Program must extend thru 2013 for those who truly qualify!!!!! And that majority of people are those who have worked hard thru the years, paid in to the system, and lost work thru NO FAULT of their own. This is AMERICA!!!! We help our citizens in need!!!!!

The fact is that there are jobs available but they pay less than the unemployment check or involve work that they don't want to do, so many people refuse to take them

(and they lie on the response questionnaire for the state unemployment dept). They would prefer to sit around, mooch off relatives rent-free, and dream that their old job will come back and refuse to re-train for another career.

Or people refuse to move to a different town or state where job prospects are better. That's what people did during the Great Depression. Unemployment rates are below 7% in 22 other states. Go to www.bls.gov/lau and look at the list on the right-hand side.
It's not 12.4% EVERYWHERE.

We need to cut off these benefits before they become just another welfare check. Personal responsibility.
After 99 weeks of free checks, the problem is you, not the
economy.